Flint Industries, Inc. and Subsidiaries - Page 10




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          it discovered a transaction that would become known as the Omega            
          transaction.                                                                
                A. The Omega Transaction and Petitioner's Discovery of                
                    Misleading Financial Reporting by G�nther’s Management            
               In the Omega transaction, G�nther transferred machinery to             
          Omega-Reed GmbH (Omega), a no-asset corporation owned by one of             
          G�nther’s former employees, in exchange for Omega’s promise to              
          produce switches for G�nther at a reduced cost and for a promise            
          to pay in the future.  Despite Omega’s tenuous financial                    
          condition, no security agreement was executed in connection with            
          the transfer.  In an apparent effort to hide G�nther’s true                 
          financial condition, G�nther’s management originally reported a             
          profit of DM 2,900,000 on the Omega transaction and booked the              
          amount due as a receivable from Omega in G�nther’s books and                
          records for FYE April 30, 1992.11  Any profit, however, was                 
          contingent upon the receipt and sale of Omega products to                   
          G�nther's customers over a multiyear period, and thus was                   
          extremely speculative.                                                      
               After petitioner discovered the Omega transaction in July              
          1992, Flint's president, Paul K. Lackey, Jr., dispatched senior             
          management to Germany immediately, and Mr. Lackey soon followed.            

               11The alleged profit was backed out and recharacterized in             
          G�nther’s commercial report for FYE April 30, 1992, and                     
          litigation was filed to recover the machinery.  Although G�nther            
          eventually recovered at least some of its machinery, the                    
          machinery had been stripped of its operating controls and                   
          essentially was worthless by the time the machinery was                     
          recovered.                                                                  




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